14 May 2013

Solid Energy problems pose risk for KiwiRail

10:41 am on 14 May 2013

The chief executive of KiwiRail has confirmed the financial problems of one of its biggest customers, Solid Energy, pose some risk for the rail company.

In a letter to the Government in February, the rail operator warned Solid Energy's problems were having a negative impact on its business.

KiwiRail said one of the biggest risks it faces is the downturn in the state-owned mining firm's coal production on the West Coast.

Chief executive Jim Quinn says the rail company is talking to Solid Energy to ensure the costs of running the service are in line with the coal company's forecast of its own business.

KiwiRail is now heading into the fourth year of its plan to turn the firm into a sustainable business again.

Overall the Government has committed about $1 billion to the effort, and Finance Minister Bill English has said the Government is unlikely to take a dividend for the next decade so KiwiRail can reinvest any profits in the rail service.

In the letter to State-Owned Enterprises Minister Tony Ryall, obtained under the Official Information Act, KiwiRail said its plan to put the company on a better business footing was going well.

The rail company said the controversial closing of the Hillside workshops in Dunedin and mothballing the Napier-Gisborne line have been important in the move to become a more efficient business.

Labour cost cuts signalled

KiwiRail signalled in the letter that it intended to cut labour costs further in an effort to turn itself into a profitable business.

Mr Quinn says the inter-island ferry service is one part of the business where change is needed.

"We know that we're paying above the market relative to the competitor and we know that we need to manage that over time."

Mr Quinn says the company also wants to make further changes to its infrastructure and engineering unit, which is responsible for track maintenance and upgrades.